How To Get A Business Loan
here are different types of business loans offered by banks and other creditors which you can choose from based on your business needs.
Determine amount to borrow
What type of financing are you going to use? Where will you borrow it from? You should answer these questions as well as remember that the financing method and its term of payment should match the reason why you are borrowing funds.
When figuring out how much money you need to borrow, you should be practical. Work out your initial start-up costs and assess when your business is likely to start becoming profitable and sustainable. You should be able to prove that regardless of unexpected interest rate increases or unanticipated lower sales, you can still repay the loan.
The creditor will need the following information from you if you are just a new business who needs to apply for a loan:
- Business product or service description
- Marketing plans for how you promote your business
- Proof of demand of your product or service
Information on your business and educational qualifications, previous ventures and achievements will be required as well.
The creditor should know the amount of funds you’ll need and what it is for. Payment terms should be clearly stated.
Sometimes you will also be required to provide your sales, profit, and cash flow projections, where loan repayments are reflected for generally a 12-month period.
The bank or financing firm would usually ask for collateral as a form of security on the loan. This will differ and depend on the type and amount of loan and will vary from every creditor. The following are commonly acceptable forms of security:
- Real estate
- Operating equipment
- Business vehicles
- Shares in public companies
- Personal Guarantees
There is likely going to be a higher chance of approval on your loan if you also submit a Business Plan which includes the following information:
- Your business goals and plans
- Systems you plan to apply to facilitate checking your business and responding to changes in your financial position
- Your market research results which support your target projections and estimated borrowings
- Make ready of your financial projections including cash flow forecast
- Settle on your collateral or security
- Prepare your Business Plan.
NOTE: This month we’re holding a limited number of Free Business Strategy Sessions designed to show business owners how they can manage and grow their enterprises with the least amount of cost and disruption possible.
Would you like to join us?
James HuyVuong is a CPA and the owner of Your Accounting Partners. Partnering with businesses from start to scale thru to sale.